Chinese demand boosts L'Oreal cosmetics sales

Strong Chinese demand for luxury skin creams helped Lancome owner L’Oreal beat sales forecasts in the fourth quarter, as did a pick-up in its lagging mass market division.

Like rivals including U.S.-based Estee Lauder, the French maker of Maybelline and Urban Decay make-up has thrived on strong demand from Chinese shoppers in recent years, especially for its higher-end products.

Sales of L’Oreal’s top-flight brands exceeded analyst expectations in the last three months of the year thanks to this market, despite cooling economic growth in China, and fears over a Washington-Beijing trade war.

Some heavy-hitters in the luxury fashion industry, like LVMH’s Louis Vuitton, have also reported encouraging momentum in Asia. At L’Oreal Asia Pacific overtook North America as its biggest region last year.

But L’Oreal, which is due to detail its results at a news conference on Friday, also faces a challenge to keep improving revenue growth in other areas, including its consumer products unit, home to brands like Garnier shampoo.

Sales rose 2.8 percent in that division on a like-for-like basis in the fourth quarter, which strips out currency effects and acquisitions, up from 2.3 percent a quarter earlier.

That helped boost overall sales at the firm, up 7.7 percent like-for-like and head of forecasts for a 6.4 percent rise, and which came in at 7.1 billion euros (£6.2 billion).

Yet the mass market segment still slightly lags the performance of peers like Nivea-maker Beiersdorf and Dove soap owner Unilever.

L’Oreal said it was also facing a sluggish market in France and the United Kingdom. While the latter only makes up around 3 percent of sales, the company has joined others in preparing for Britain’s potentially chaotic exit from the European Union, and has started stockpiling cosmetics.

The company said it still expected to outperform the broader beauty market in 2019, though the tone of its outlook was a tad less bullish than last year, forecasting “growth in both sales and profits” rather than “significant growth.”

For 2018 as a whole, the company’s operating profit rose 5.3 percent to 4.7 billion euros, giving a margin of 18.3 percent of sales, up from 18 percent at the end of 2017.

One of L’Oreal’s biggest shareholders with a 23 percent stake, Switzerland’s Nestle, has come under pressure from an activist investor to sell off its stake in the French cosmetics firm. The firms have yet to signal whether such a move was in view.